Archive for September, 2012

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A recent article in the New York Times is outlying how the 2013 model year for cars will be different than the past.  The list of cars off show room floors for 2013 includes  more than a dozen well known models and two full brands.

Perhaps the most notable, the 63 year old car company Saab will be dismantled.  Saab has been engaged in a lengthy bankruptcy process.  Between the bankruptcy and other legal problems, Saab will no longer be manufactured.

A quick search of www.saab.com confirms this and now links only to the official parts manufacturing wing of the once great car company.  For those interested, the website also has links to official press releases about the status of the bankruptcy case, and other information regarding the demise of the car manufacturer.

Some of the cars that are being removed are high-end elite cars that rarely grace the streets.  For example, Aston martin DBS “Aston’s top model- save for the horsepower Vanquish coupe and convertible.  Like James Bond bidding farewell with a sly wink and raised martini, the DBS exits in style.”

Others are more common to us.  We’ve been inundated over the past few years with commercials for the Dodge Caliber and the Jeep Liberty, but both are no more.

Similarly, when many people hear of “Kia,” they think of the “Sedona.”  But the Sedona is no more.  As the article describes, “Kia’s stylish hip-hop hamsters would steer clear of the Sedona, the South Korean Automaker’s bland entry in the minivan market.  A more cutting-edge replacement, based on the KV7 design study, is planned for the 2014 model year.”

Many have heard of the ultra-exclusive Maybach.  But after this year, we will probably be hearing less of about it.

One of the most innovative cars of the past few years, the Tesla Roadster, is also on the chopping block.  “A two-seater based on the Lotus Elise, with zero-emission electric power train for scintillating performance, the Roadster made electric cars cool.  But the travel range was limited and the price topped $100,000.  Having made its mark with the Roaster, Tesla has turned its attention to the more affordable Model S sedan.”

While it may be sad to see some of these cars go this year, it is probably a good sign.  The auto industry has been very slow to catch up to the ever evolving tastes of customers.

A car company cannot keep all of its models while creating new ones to match the preferences of consumers.  If we want cheaper cars with better fuel efficiency, we need to be prepared to watch some of the other models go.

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The Chicago Tribune is reporting that an attorney based in Libertyville and living in Vernon Hills, has been charged by the federal prosecutors with one count of mail fraud, wire fraud and obstruction of justice.

Bradley Aubel, an attorney in Illinois since 1997, allegedly used his clients’ credit cards for cash advances and blackmailed an employee into creating bogus tax returns to avoid paying off more than $100,000 in student loan debt and to qualify for a new car loan.

The employee was arrested for identity theft, allegedly caused by her assistance in Aubel’s scheme.  She then agreed to work with the FBI, by recording conversations and text messages with Aubel, in order to gain evidence on him.

According to the report, “in one text exchange in August 2011, Aubel told the employee that he needed returns showing he made $6,666 a month so he could buy a 2011 Honda Fit.  The other returns had to show annual income of only about $8,000 in order to convince the U.S. Department of Education that he should be excused from paying back student loan debt of about $106,000.”

Allegedly, Aubel would use his clients credit cards to get cash advances and then discharge the debt in bankruptcy court.

Once the employee was charged with identity theft in 2012, Aubel convinced the woman to plead guilty to a light sentence.  In exchange for covering his fraudulent acts, Aubel allegedly agreed to continue to pay her salary and mortgage.  Aubel also agreed to give his employee's sister $6,000 to hide out in Mexico to avoid further investigations.

The charges are still pending, but if Aubel has committed these crimes, it would be a serious abuse of the trust that lawyers are given in our legal system.

Aubel was supposed to be acting as an officer of the court, and was entrusted to help his clients and zealously advocate for them.

Using clients’ credit cards to receive cash is an incredible breach of trust.  Not only does it essentially steal money from the credit card companies, it also poses the very serious risk that the bankrupt client would have to pay a percentage of the money that Aubel allegedly stole.

Many people already have a low opinion of attorneys in general.  While that overall view may not be fair, it is stories of attorneys acting like this that reinforce that perception.

If Aubel did do this, then he hurt credit card companies, his profession, and most importantly, his clients.

Aubel is currently released on $10,000 bail, and scheduled to appear in court on October 16.  There will, undoubtedly, be many interested observers to see how this case plays out.

Wednesday, September 26th, 2012

Special Effects Company Files Chapter 11

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Digital Domain Media Group Inc, the company responsible for the visual effects in blockbuster “Titanic” files for Chapter 11 protection, but the bankruptcy may not be smooth sailing.

According to the Chicago Tribune, in September 11, 2012, Digital Domain filed for bankruptcy protection. However, in a follow up article by Reuters, the judge is skeptical of the speed with which Digital Domain is trying to force a sale.

Digital Domain, founded in part by well known director James Cameron, was once valued at $400 million, but has now dwindled to $24 million. The company now owes approximately $10 million in debts beyond its assets ($214.9 million in debt and $205 million in assets).

Many big budget movies owe some of their special effects work to the media giant. These films include, “Pirates of the Caribbean: At World’s End,” “The Curious Case of Benjamin Button,” “Star Trek,” and “Transformers”.

As a sign of the turmoil to come, Chairman and Chief Executive John Textor resigned last week. He was reportedly quoted as saying that he was in “profound disagreement” with a decision to close the companies Florida studio (Digital Domain still operates a studio in California and Vancouver).

On September 11, Digital Domain announced that it would sell the flagship company to Searchlight Capital Partners, a private investment firm, for $15 million.

On September 12, Reuters reports that the judge assigned to the Chapter 11 case called the proposed sale to Searchlight “unprecedented” in its speed. The implication is that the Judge Brendan Shannon may delay the auction of Digital Domain.

The delay being considered by the judge is still relatively short, approximately two weeks. Lawyers for the troubled special effects company argue that any delay could affect the release date of big budget films.

However, the delay might be able to bring in more bidders that Searchlight, which may drive the price up and give more money to pay off Digital Domain’s creditors. Reuters is also reporting that Prime Focus World, creator of the special effects for “Avatar,” is contemplating a bid.

Prime Focus World has not publicly stated an interest in bidding, but perhaps an extra two weeks would give the Prime Focus an opportunity to decide if it wants to enter the auction.

As it stands, Digital Domain’s attorneys were trying to push a September 21 auction date. Aside from the movie release concerns, Digital has also expressed a concern about the ability to meet payroll for its 765 employees.

Even if Judge Shannon decides to delay the auction by two weeks, it would still be an incredibly fast turnaround for a Chapter 11. These multimillion dollar corporate bankruptcies have the potential to take years and cost millions of dollars. At least the initial indication is that Digital Domain will emerge from Chapter 11 in a relatively short time span.

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Those who have followed Dewey & Leboeuf over the past several years, a bankruptcy filing was not unexpected. However, for a law firm of this size to decide to liquidate its assets is still very uncommon.

A recent article in the New York Times is reporting that the troubled firm has filed for bankruptcy with the intention of liquidating its assets.

Richard Holwell, a former federal judge, tried to put the bankruptcy into perspective. He is quoted as saying that, “This is a very sad day for the legal profession… Dewey is a fabled firm with a lot of great lawyers and a demise of this magnitude is unprecedented.”

Currently, Dewey has only 90 employees. The firm is asking that they remain on to help the wind down process and help the firm smoothly close its doors for good.

90 employees is considerably lower than the peak of more than 2,500 employees and nearly 1,400 lawyers in 26 offices.

There is no single even that has brought on the demise of Dewey. Instead, many are pointing to the culture of the firm (which has been adopted by many other firms).

Traditionally, when an attorney makes partner at a firm, there is a sense of equality with other partners. There is an invested stake in the profits of the firm, but also a feeling of ownership and pride in the firm.

In recent times, Dewey and other large firms, have been increasing the disparity of share between senior partners and junior partners. This makes it less likely that junior partners are going to feel a sense of loyalty to the firm. Thus, when the firm hits hard times (as they all do) a mass exodus of junior partners happens.

As William Henderson, law professor at Indiana University puts it, “Because the partnership lacks any shared cultural values or history, money becomes the core value holding the firm together… [m]oney is weak glue.”

Dewey has represented some big name clients, from National Football League (NFL) to the National Basketball League (NBA) and even advised MetLife in a $12 billion acquisition.

There is little doubt that the global financial crisis is effecting large firms, and contributing to the collapse of Dewey. Large companies are not as likely to outsource their legal work to top tier law firms (which can charge over $1,000 an hour for top partners work).

Instead, many corporations are keeping legal work in-house and paying significantly less to have a company attorney perform the legal work.

Whether or not the collapse of Dewey is a sign that other mega-firms will follow suit is yet to be seen. What is certain is that Dewey & LeBoeuf has run its course.

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What Republican Presidential Candidate Mitt Romney Actually Said Behind Those Closed Doors

Mitt Romney was secretly recorded casting nearly half the country as welfare-dependent Americans who see themselves as victims.

"There are 47 percent of the people who will vote for the president no matter what. All right, there are 47 percent who are with him, who are dependent upon government, who believe that they are victims, who believe the government has a responsibility to care for them..."

WAIT...WHAT?!?! Did Romney say people who rely on government support think of themselves as victims?

Does Romney believe that 3.28 million benefit-receiving children see themselves as victims?

Temporary Assistance for Needy Families (TANF) provides temporary benefits to financially distressed families.
According to the U.S. Department of Health and Human Services, Administration of Children & Families, in 2010:

  • Nearly half of all TANF cases were for children only.
  • The average case cared for 1.8 children.
  • Half of all cases had just one adult recipient, while only 5 percent had two or more adult recipients.
  • Over 85% of those adults were women, and 90% were the head of their household.
  • In total, 3,280,153 children were covered under TANF.

"...who believe that they are entitled to health care, to food, to housing, to you name it. That that's an entitlement. And the government should give it to them. And they will vote for this president no matter what..."

Health Care

  • According to CNN, 31% of Americans are covered by government health insurance (95 million people).

Food

  • As of August 2011, Americans were at an all-time high on food assistance. Approximately 15% of Americans (45.8 million people) were enrolled in the Supplemental Nutritional Assistance Program (SNAP), according to the Huffington Post.
  • The state with the most SNAP recipients happens to be the mainly Republican voting state of Texas, according to Business Week.
  • CNBC reported the average food benefit per person is $132.96/month.

Housing

  • Only 4% of Americans rely on rental assistance or government-subsidized housing, as reported by Slate.

"And they will vote for this president no matter what...These are people who pay no income tax."

But income tax is JUST ONE FORM of tax that Americans pay into the system. The reality is, of all Americans:

  • 53.6% pay income tax
  • 28.3% pay payroll tax
  • 10.3% don't pay income or payroll tax because they are elderly
  • 6.9% don't pay income or payroll tax because they make less than $20,000/year
  • 1% don't pay income or payroll tax for "other" reason - perhaps they are taking advantage of tax loopholes

That means, according to Business Insider, that 81.9% of Americans pay income or payroll taxes!

Romney went on to say, "My job is not to worry about those people. I'll never convince them they should take personal responsibility and care for their lives."

Does Romney see YOU as part of the "47 Percent"?

When it comes to Entitlement Benefits, more than 90% of that spend goes to the elderly, disabled or people in working households. The majority goes to Social Security, Medicare and Medicaid.

So, if you have received any of the below entitlements, Romney may have been talking about you!

  • In 2012, $778 billion will be distributed to more than 56 million Americans. The majority of that goes to retired and disable workers, and to spouses of recipients who have died. For the elderly, it is their essential source of income.
  • In 2010, the government estimated 47.5 million people with Medicare.
  • In 2010, the government aided an estimated 53.9 million people with Medicaid.
  • 14 million unemployed workers received emergency unemployment benefits between 2008 and 2010.
  • Entitlements even include things as small, but as meaningful, as School Lunches. In 2011, approximately 31 million children were provided a cost-effective, healthy lunch option by the National School Lunch Program.

Wednesday, September 19th, 2012

American Airlines Wins Cost-Cutting Approval

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American Airlines, the long embattled airline company, has a recent win in their bankruptcy proceedings.

Bloomberg News is reporting that American Airlines has prevailed in a court battle to receive permission to use new “cost-cutting labor agreements” with the unions for flight attendants and mechanics.

Federal Bankruptcy Judge Sean Lane approved a six-year contract which promises to give more certainty to the workforce for the airline giant.  Judge Lane stated that “labor peace” was valuable to American Airlines.

Judge Lane, according to the Federal Court's website, has been a bankruptcy judge since September 2010.  He graduated from New York University School of Law in 1991 and “has served as an Adjunct Professor at both New York University School of Law and Fordham Law School.”

This agreement will reportedly “give the union 3 percent of the equity issued to unsecured creditors when [American Airlines] exits bankruptcy.” The baggage handlers will reportedly get 4.8 percent.

The new deal will save American Airlines money that is critical to restricting the company and keeping it stable.

The news of this win for American Airlines comes less than a month after Judge Lane rejected American Airlines attempts to abandon collective bargaining agreements reached with the pilots’ union.  According to the Chicago Tribune, the decision to deny American Airlines proposal was “an unexpected decision and setback for bankrupt [American Airlines] in its quest to save more than $1 billion a year in labor costs.”

The pilots union is the only union that hasn’t agreed on concessions with American Airlines.

All of these union talks are for American Airline to find a compromise on previously made deals.  American Airlines made deals with its unions on certain pay guidelines.  These have the effect of any contract.

Since American Airlines has filed for bankruptcy protection, the unions have become creditors of the company.  In bankruptcy, it is normal to rework and compromise with creditors.

What American Airlines is doing is, in exchange for giving up their previous contracts, unions are being given percentage equity in the company.  Therefore, the unions will have an interest in the success of the company (the better the company does, the more it’s worth, and the more their percent of the company is worth).

Thanks to the concessions of the unions, American will cut almost 2,500 less jobs than it has initially anticipated (7,635, which is down from 10,975).  The reworked contracts will reduce American Airlines costs by $900 million.

Now that the flight attendants and baggage handlers have finalized their new contracts, the last major hurdle in the collective bargaining fight will be the pilots.  The pilots will have to agree to a new contract eventually, it’s just a matter of how much of a reduction in benefits they will be willing to settle for.

Wednesday, September 12th, 2012

15 Low Cost Activities For Fall

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The fall is many people's favorite time of year and we all want to get out and do things, but we also don't want to break the bank. It is that period of time where we recover from our summer spending and should probably start saving up money for the holidays, but it is so hard not to go out and enjoy the fall.

Here are some great, cost-effective, ways to enjoy this fall and not go down the bankruptcy path in the meantime.

  1. Invite friends and/or family over and have a backyard bonfire. Roast marshmallows and tell stories. You'll run into hours of entertainment and laughter for everyone.
  2. Hop on your bike, or put on your roller blades or running shoes and hit the trails. Get some exercise and enjoy the crisp air!
  3. Have a movie marathon day at home in your pajamas. This is perfect for a day at home alone, a day with the family or a day snuggling up with the one you love.
  4. If the weather is nice, have a picnic. If it gets too chilly, move the picnic indoors.
  5. Have dogs? Take them to the dog park. Let them run around and enjoy themselves before it is too cold for us to want to stand outside for hours on end.
  6. Check out free days at the museums. You can never stop learning.
  7. See what your local library has to offer. Most libraries have free movie showings and/or story telling.
  8. Teach yourself something, like knitting. Maybe even knit yourself something for the winter!
  9. Check out local high school football games.
  10. Cuddle up with a good book.
  11. Plant mums and rake leaves. Who doesn't love a big pile of leaves?
  12. Volunteer somewhere. Feel good about yourself while helping others.
  13. Go apple picking and then do some baking!
  14. Once October rolls around, carve pumpkins. Maybe even visit the pumpkin farm!
  15. Make Halloween costumes instead of buying them, it can be a much more fun activity than store bought costumes.
  16. BONUS! Go for a walk outside and see the leaves change colors. Maybe even collect some leaves and turn them into an arts and crafts project.

Fall can be a great time to get yourself back on track financially and have some fun doing so. No one really wants to file for bankruptcy and no one really wants to just stay home and stare at the walls.

Monday, September 10th, 2012

Tribune Company Set to Exit Bankruptcy

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The Tribune Company, former owner of the Chicago Cubs, is set to exit bankruptcy according to a recent article.

The Tribune Company has been involved in bankruptcy proceedings for over 3 and half years.

In late 2008, the Tribune Co. filed for Chapter 11 bankruptcy protection. Over the years of the case, several large portions of the company have been sold (including the iconic Chicago Cubs, sold to Tom Ricketts).

The company itself has existed as a staple in Chicago for 165. Now, for the first time, the company will be controlled by parties from outside the city. The parties who are soon to be in control are, “a group of senior creditors led by Oaktree Capital Management, Angelo Gordon & Co and JPMorgan Chase & Co.”

The judge has indicated that the final agreement is permissible, but there is some technical points that need to be carried out before the final order of the case can be entered.

In a bankruptcy proceeding, the creditors are typically listed into different categories of priority. The senior creditors have the highest priority, and thus have the first rights to be paid out. The court works to help find an agreement to disperse the money in a way that will optimize the payouts for all the parties, but the senior creditors have to be paid before the junior creditors.

The senior creditors in the case are in support of the plan; however, the junior creditors are less enthusiastic about the plan.

According to the article, “Junior creditors opposed to the plan have pledged to appeal [the Judge’s] decision and related legal battles stemming from the company’s disastrous 2007 leveraged buyout case are likely to rage on for years.

The final cause of the bankruptcy seems to be a failed attempt to take the company private, leaving $13 billion of debt.

In order to keep the Tribune Co. alive it will have to become a much smaller company than it has historically been known for.

The two main newspapers from the media giant are the Chicago Tribune, and the Los Angeles Times. Despite the status of these papers (and it’s six other daily papers) the newspaper portion of the company has dwindled in value.

Currently, the company has approximately $2.9 billion worth in television channels, $2 billion worth in equity investments, but all the newspapers owned by the company are only worth an estimated $623 million.

The Tribune Co.’s bankruptcy case has highlighted many of the shortfalls of large Chapter 11 bankruptcy proceedings. The main being cost.

Since the start of the case, nearly $10 million a month has been spent in legal fees and other professionals ($400 million in only 43 months).

As perspective, that’s nearly 2/3rds the value of the newspaper companies owned by Tribune Co. just to pay for the legal fees.

http://articles.chicagotribune.com/2012-07-13/business/chi-tribune-co-bankruptcy-20120712_1_junior-creditors-group-of-senior-creditors-bankruptcy-judge-kevin-carey/2

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The rising cost of education, and minimal jobs for young people, have caused some to claim that student loans could be the next housing bubble. Unlike the housing bubble, a student loan debt is unsecured (meaning there is nothing for the bank to take possession of and sell to reduce their losses)

Due in-part to the unsecured nature of student loans, these debts can be more difficult to discharge in a bankruptcy case than many other forms of debt.

A recent article in the New York Times has explored the process that one needs to traverse in order to discharge their student loan obligations.

When a debt is discharged in bankruptcy, it gives the debtor a fresh slate. The court can order that the debtor repay a certain percentage of the obligation over a span of years, or a one lump payment before the debt is discharged.

In contrast to many other types of debt (like credit cards), student loans will often survive a bankruptcy and still be the full obligation of the debtor. But there is a way to discharge student loans in bankruptcy.

In order to discharge student loan debts, the debtor must prove that repaying the obligation would cause an “undue hardship.” Undue hardship is a legal phrase, and there are standards that have to be met in order for an “undue hardship” to be found.

To satisfy the test, the debtor must often show that there is a “certainty of hopelessness” that he or she would ever be able to repay the obligation.

Student loan debt wasn’t always this difficult to discharge. In the mid 1970s, student loan debt was treated the same as credit card and auto loans.

During the mid-70s reports started to appear of doctors and lawyers filing for bankruptcy shortly after graduation in order to wipe their slate clean and start their professional careers without student loan debt.

In a reactionary move, Congress changed the laws in 1976, to prevent this perceived abuse.

Several times since the 70s, these laws have been toughed at the federal level and extended so as to apply to private lenders as well as the federal government.

It seems that this trend cannot continue. Many students are graduating under significant amounts of debt with a considerably worse job market than they were anticipating. It’ll be interesting to see how Congress acts when more and more struggling graduates attempt to discharge their student loan obligations (either partially or wholly).

The article states that the “for-profit companies that lend money to students persuaded Congress to extend” the rules to make private loans difficult to discharge as well as federal. And if they continue to put pressure on Congress, then the unemployed, broke recent graduates don’t seem to have much hope in influencing Congress.

See Also: Video: Student Loans in Bankruptcy

Monday, September 10th, 2012

Can a City Go Bankrupt?

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Bankruptcy is commonly thought of for people and businesses that have debts which they are unable to pay. But in actuality the bankruptcy laws in the U.S. are much broader than this. In fact, cities and townships can even file for bankruptcy protection (an increasing phenomenon). The NPR recently aired an interview which explains what happens when a city declares bankruptcy.

One of the most popular misconceptions about cities in bankruptcy, as well as people and businesses for that matter, is that bankruptcy is a way of avoiding payment on all debts. When a city files for bankruptcy protection, it is still obligated to its debtors.

When a city files for bankruptcy protection, it mainly helps set a plan to pay its debtors. When a city has many past due debts, a bankruptcy filing would prevent lawsuits from each individual debtor. It helps to consolidate the various causes of action.

Bankruptcy is also a tool to differentiate among creditors, and determine their priority. When a city, or any person or entity, files for bankruptcy, one of the primary issues is the priority of the creditors. Priority is important because it can be the determining factor for when and how much a creditor gets paid.

Priority is used to put creditors in different classes. Generally, this means that members of one class will be paid before the members of another class. When there is limited funds to go around, being in a higher priority class can have significant repercussions for the amount of money realized. A significant amount of bankruptcy litigation is creditors attempting in increase the priority of the debt.

So what causes a city to file bankruptcy?

If a city doesn’t have a properly balanced budget and spends itself into a deficit it can very easily get in over its head in debt. When the economy is down, then the city’s tax revenues are down. When this is compounded with continuing obligations to state employees and service workers as well as pensions, it is easy to see how a city can end up in financial trouble.

When a city is forced to reduce costs as much as possible, one of the first things to get cut is preventative maintenance. It is difficult to justify repaving the roads when the city has pension is has to pay.

One of the more interesting points of the NPR interview came when the psychology of a bankrupt city was discussed.

”When there’s a label put across a city or a county or a special district that says, you’re in bankruptcy, it equates in the minds of the public to dysfunction. You couldn’t manage your own business, so you end up in bankruptcy. And it is very difficult for the employees. They don’t want to be associated with a dysfunctional organization. It destroys morale.”

Bankruptcy is a tool available to a wide variety of people, companies and cities. It has an often unfair stigma attached to it, which can effect an entire city. And with so many cities declaring bankruptcy, it is fair to assume that many more people with experience this lowering of morale.

http://www.npr.org/2012/07/11/156621232/what-happens-when-a-city-declares-bankruptcy